IDT: Charged Up Over Smartphones

09/07/2015 8:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

This featured recommendation develops a broad range of low-power, high-performance mixed signal semiconductor solutions, focused on data centers, communications infrastructure, and wireless charging, explains small-cap expert Tom Bishop, editor of BI Research.

IDT (IDT) targets three primary markets, data centers, communications infrastructure, and wireless charging.

While data centers/high-performance computing is generating the most exciting growth currently, wireless charging promises to be the most exciting growth market for the future.

In addition, the company is benefiting from a refocusing initiative on these higher-growth, higher-margined markets.

IDT's fiscal Q1 results ended 6/30 were well received by investors. Adjusted EPS came in at $0.31, comfortably ahead of expectations of $0.29.

The company also reported operating margin of 29.3%. Sales for the quarter increased 27.4% to $161 million.

Meanwhile, wireless charging products vaulted 144% sequentially from $4.5 million to $11 million as this fledgling product category takes off.

Wireless charging is also forecasted to grow another 20% sequentially (to about $13 million) in the current quarter. Note this category really didn't exist a year ago.

Also, the company reported a design win for its recently announced Power Share technology, which enables a smartphone to be charged wirelessly, as well as to transmit a charge wirelessly to another device.

Telecom infrastructure (40% of revenue) was a weak spot, dropping 12.5% sequentially, largely due to a slowdown in China.

However, IDT believes the June quarter marked the bottom and that there will be steady sequential growth in the coming quarters.

On the plus side, it reported the first encouraging orders from India as it finally appears to be moving forward with its 4G rollout there.

For the full year, estimates have been climbing steadily from $1.06 originally to $1.21 today. This is just what you want to see.

Meanwhile, IDT has no long-term debt and $540 million in cash, which it is using, in part for a $300 million stock buyback program. It purchased $30 million in Q1.

So this company is doing very well but many in the semiconductor space are suffering from one thing or another including concerns about the level of iPhone sales, slowdown in China, and what have you.

But while this justifiably weighs on some players in the space, it is unfortunate that it is also holding back players that are doing exceptionally well, which spells an opportunity for us. Buy.

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